WASHINGTON — Federal Reserve Chairman Paul A. Volcker, warning of growing "imbalances and strains" in the U.S. economy, today urged America's major trading partners to do their share to keep the worldwide recovery alive.
Volcker, in his mid-year report to Congress, issued his strongest plea yet for Japan and the countries of Europe to push for stronger internal growth to take some of the pressure off the United States, the driving force behind the 3 1/2-year-old recovery.
Volcker's testimony to the Senate Banking Committee came at a time when the central bank is under renewed pressure to loosen its credit controls to spur the sluggish American economy.
GNP Growth 1.1%
The government reported Tuesday that the economy, as measured by the gross national product, grew at an annual rate of just 1.1% in the April-June quarter, the slowest pace since the end of the recession in 1982. (Story on Page 6.)
After the GNP report was released, Senate Majority Leader Bob Dole of Kansas said the sluggish growth report was further evidence that the Fed needed to cut its bank lending rate by "another half point to a point."
The Fed has already reduced its discount rate, the fee it charges financial institutions for loans, three times this year to its current level of 6%.
Responding to critics, Volcker said in his testimony that the Fed's conduct of monetary policy could not alone provide the stimulus needed to keep the recovery going.
Volcker warned that all the country's progress since the end of the 1981-82 recession was in "growing jeopardy unless we act--we in the United States, we in the industrialized world and we in the world as a whole--in mutually supportive ways."
Volcker called on America's trading partners "to achieve and maintain a momentum of home-grown expansion" that would boost demand for American exports abroad and thus help to alleviate the yawning U.S. trade deficit.
Volcker said that a few foreign countries, such as West Germany, are showing some signs of stronger economic growth. But he said these signals are still modest and vary widely among key nations.
Inflation Threat Seen
The head of the central bank said the Fed will play its part in promoting stronger growth, but he also warned that inflation, which has been declining this year because of falling oil prices, is likely to return to higher levels in 1987, placing limits on how much the central bank can do to promote economic growth without rekindling higher inflation.
The Fed's efforts so far this year to spur economic growth by lowering interest rates have pushed a variety of rates, including mortgage rates, to their lowest levels of this decade. But economic growth has remained stuck at the sluggish plateau of the last two years.